Wilson Oil Company issued bonds five years ago at $1000 per bond. These bonds had a 25-year life when issued and the annual interest payment was then 8 percent. This return was in line with the annual interest payment was then 8 percent. This return was in line with the required returns by bondholders at that point in time as described below:
- Real rate of return: 2%
- Inflation premium: 3%
- Risk premium: 3%
- Total Return 8%
Assume that 10 years later, due to bad publicity, the risk premium is now 6 percent and is appropriately reflected in the required return of the bonds. The bonds have 15 years remaining until maturity. Compute the new price of the bond.